Published: September 29, 2011
By Matthew Cordaro
Last week the Long Island Power Authority begrudgingly announced it will delay its decision on restructuring until Oct. 27. Did the Suffolk County Legislature’s appeal to Gov. Andrew Cuomo for such an action influence this? We may never know. More importantly, though, is the delay enough?
Much has been reported about the two most feasible options in LIPA’s study of potential structures. One, called SERVCO, is very similar to how the utility now operates with a private company, presently National Grid, performing most of the operating functions. The other is full-scale municipalization, in which all workers would be LIPA employees.
In spite of three earlier iterations of the SERVCO concept failing for LIPA, this option is heavily favored by its staff, based not on the recommendations of a $1.5 million study by their consultant but on an instinct that, although the municipalization route may be the right option, the transitional risk for SERVCO would be less. This is truly ironic, since the SERVCO-type structure was originally devised by LILCO as a means to retain control over LIPA.
Meanwhile, the SERVCO structure is not employed at any other public utility in the nation. Instead, most rely on the full-scale municipalization model and have great success in terms of rates and customer satisfaction.
In the case of LIPA, it is inconceivable that a transition to this type of structure would be any more challenging than the changes envisioned under the modified SERVCO approach.
The shortcomings of a SERVCO structure were never more evident than during Hurricane Irene. Confusion prevailed as public officials and customers struggled to figure out who had responsibility and accountability, National Grid or LIPA. Severe problems were experienced in both internal and external communications and some customers went more than eight days with no electricity. In the end, fingers of blame were pointed. Will the same fingers be pointed at the SERVCO down the road when LIPA needs a whipping boy?
In discussing who will pay for Irene, LIPA responds as it did when customer overcharges for lost energy and fuel costs were discovered – accounting adjustments can be made and no rate changes are necessary. The simple truth: All LIPA costs are paid by ratepayers and somewhere, somehow the customer will pick up the $200 million tab for Irene, either through rate increases, financing or accounting manipulations.
Most recently, yet another financial threat has surfaced. Apparently, National Grid maintains that LIPA is responsible for a $600 million underfunding of Grid worker pensions. Could this affect the restructuring or the award of a new operating contract?
At the least, LIPA customers are potentially facing yet another financial land mine, which is possibly the result of sweetening the pot for the unions to support National Grid’s acquisition of Keyspan and LIPA’s acceptance of it as the new contractor.
Even LIPA admits change is needed. LIPA’s board, however, with vacancies and no CEO, is in a difficult position because individually they do not have professional utility experience and must depend on an understandably biased staff for guidance. For this reason, it is unlikely they would approve a structure not supported by staff. More likely, they will punt by choosing SERVCO on the basis that if it fails, they could revisit municipalization, however costly.
With this prospect, it is vital for Cuomo to step in now and redirect efforts. He has already taken the very important measures of ordering the inspector general to audit LIPA’s operations and more recently its performance during Irene. Before any decisions about restructuring are made, it is absolutely necessary for the results of these audits, as well as other investigations of LIPA now under way, to become available.
Even absent the governor’s involvement, LIPA’s board should delay its Oct. 27 decision to give government officials and the public time to consider the findings of all audits and investigations. You cannot fix anything until you know what is broken.
Cordaro is co-chair of the Suffolk Legislature’s LIPA Oversight Committee and a former public utility CEO, trustee of the American Public Power Association and senior LILCO executive.